Doing business in China could potentially endanger the national security of Taiwan and the United States as well as violate democratic values, American scholar-businessman Ethan Gutmann argued yesterday at a forum held in Taipei.

Gutmann was basing his arguments on those made in his book titled "Losing the New China - A Story of American Commerce, Desire and Betrayal," which discusses in detail how American businesses played a role in restricting freedom of thought in China, in turn betraying the American values of liberty, democracy, and human rights.

He warned that the technology transfer to China, which was continued unabated throughout the 1990s, evolved into a "floodgate" with the IT boom in 2000 and could jeopardize the national security of U.S. and Taiwan.

He cited one example where the U.S. mobile-communication company Motorola outsourced 25 major research and development plants to China, and some of the plants are actively engaged in R&D projects for the Chinese government's defense applications.

Other companies including IBM, Intel, Honeywell, Microsoft, General Electric, Nortel, and Alcatel also used this strategy as a tactic to strength relations with the Chinese government and subsequently get a piece of China's market share, he remarked.

Gutmann said that in the early 1990s, a consensus was reached within the U.S. that trade, and especially free trade, would bring forth a capitalist and democratic China. He noted that at the time, the United States was not worried about technology transfer, as an ideologically similar China would not be a threat.

After a decade, however, the Americans found the Chinese people awash in hyper-nationalism and expansionist ambitions - without the presence of democracy and human rights.

Gutmann also criticized American corporations for facilitating the world's largest "big brother" Internet by pointing an accusing finger at Cisco Systems, Microsoft, and search engine Google.

Cisco was alleged to build a specially configured firewall box in the late 1990s so that the Chinese government could censor the Internet. Cisco's contribution was paid back as it captured 80 percent of China's router market.

He noted that Cisco also developed "Policenet," a cutting-edge surveillance system to provide secure linkage to provincial security databases allowing for crosschecking and movement tracing. As part of China's "Gold Shield" Project, Policenet allowed Chinese policemen to remotely access a citizen's work information, surfing history, and e-mails.

As of June 2003, Policenet was installed in every province of China except Sichuan. However, Cisco denied its role in the project, even though a brochure was made to advertise its "digital policing" system, he said.

In additional, Microsoft was accused of prohibiting Chinese customers from using sensitive words such as "democracy" and "Falun Gong" as search keywords, while Google was found censoring its news Web sites.

Based on his three-year experience in China, Gutmann expressed total skepticism of all official economic statistics announced by the Chinese government. He stressed he was not predicting the Chinese economy's imminent collapse, but was merely suggesting there was no credible measurement of where China's economy really stood with its booming coastal regions and lackluster interior provinces.

On the other hand, he felt that the Chinese businesses would find ways to make money without the principles of liberty, democracy, and human rights. He refused, however, to make predictions on how long the situation would last, but pointed to a recent movement pushing people to renounce their Chinese Communist Party membership as a sign of people's dissatisfaction.

Gutmann also suggested that the U.S. Congress showed its concern over China's military rise when it erred on the side of caution in rejecting China's state-owned China National Offshore Oil Corp.'s attempted buyout of oil company Unocal.

Gutmann was invited by the Chung-Hua Institution for Economic Research to attend a seminar on the Chinese economy and the foreign investor in the Chinese economy, which takes place this Wednesday.